CVS Caremark vies for TN contract

CVS Caremark is among four companies vyingto get drugs at CVS drugstores rather than
for a state of Tennessee contract worth roughlythrough other channels, said David Shove, an
$300 million a year to manage pharmacy benefitsanalyst with BMO Capital Markets in New York.
for 270,000 state employees and their"They've been selling convenience — that you
families.        Winning such a big contractcan use the retail stores and get 90-day
has become critical for the drugstore chain thatprescriptions at the retail stores," Gabelli analyst
retains its pharmacy benefits arm in Nashville.Jonas said. "But we're in the middle of a recession.
The company has lost major contracts worthThey really need to be marketing low prices
about $4.8 billion around the country in recentrather than convenience."
months and its stock price has fallen from a highAddressing a health-care conference last month,
above $44 a share in June 2008 to less than $32CVS Caremark CEO Tom Ryan acknowledged
a share this week. It also forecasts a 10 percentthe company's marketing message could have
to 12 percent drop in the pharmacy benefits unit'sbeen off base, adding, "We need to flip that
operating profit next year.message around."
The Woonsocket, R.I.-based drugstore chain'sBut Ryan said the notion advanced by critics that
CaremarkPCS Health unit will compete againstthe drugstore business creates an ethical conflict
CIGNA Pharmacy Management, UnitedHealthwith CVS Caremark's pharmacy services and
Group's Prescription Solutions and Catalyst Healthskews prices offered to clients is "baloney."
Solutions' CatalystRx unit for the lucrative stateLocally, CVS Caremark has lost business, including
contract. Last week, CVS Caremark won a newa pharmacy benefits contract with Vanderbilt
contract worth almost $1 billion to continueUniversity, which on Jan. 1 will switch to Madison
handling pharmacy benefits for retired TexasWis.-based Navitus Health Solutions. "Vanderbilt
teachers.wanted a pharmacy benefits manager that would
"It's not terribly material to them from a financialpartner with us to control our prescription drug
point of view, but just the fact that they'recosts," said John Howser, its spokesman. "Navitus
winning contracts again gives you some hope thatoffers this opportunity."
they can turn it around," Jeff Jonas, an analystOther lost contracts recently included the state
with Rye, N.Y.-based Gabelli & Co., said ofgovernments of Ohio and New Jersey.
the Texas win.How Tennessee works
The Tennessee bids will be evaluated with resultsUnder the state's current arrangement, CVS
sent to a committee to pick a winner so theCaremark manages pharmacy benefits for about
contract can start early next year, said Joe83,506 members in insurer BlueCross BlueShield of
Burchfield, spokesman for the state's benefitsTennessee's preferred provider plan statewide.
administration. The state plans to switch to aPharmacy benefits units of CIGNA and
single contract for pharmacy benefits that haveUnitedHealth Group's RxSolutions unit that does
been handled by three separate insurers.business as Prescription Solutions handle services
Pharmacy benefits managers negotiate drugfor workers and others enrolled in their respective
prices with manufacturers and retailers on behalfpoint-of-service plan and health maintenance
of client health plans, employers and governmentorganizations.
entities.CIGNA claims to handle services today for
Having a single vendor could lead to cost savings153,000 of the overall 270,000 state employees,
for the state, including from the winning bidderdependents and others.
buying drugs in larger quantities for all planCatalystRx, the fourth bidder for the state's
membersDrugstore chain CVS Corp. ofpharmacy benefits services contract, has several
Woonsocket, R.I., and CaremarkRx of Nashvillestate clients and is known to be a player in that
touted their 2007 merger as one that wouldniche.
transform the drug services business. But theStock analyst Jonas of Gabelli & Co. sees
company's recent performance and lost contractsCVS Caremark and Catalyst as the two
have left investors and many analysts questioningfront-runners for the Tennessee contract.
the value of the two-year-old mergerBadBut the stakes for CVS Caremark remain
marketing?especially high here, considering lingering concerns
Some stock analysts say one reason for CVSabout its business model, another analyst said.
Caremark's problems has been its approach to"It isn't going to make the difference between
marketing the post-merger company to potentialprofitability and non-profitability," said Shove of
customers. Constant mention of the drugstoreBMO Capital Markets. "But you need to get as
side of the business makes employers and healthmuch business as you can.
plans nervous about whether they're being pushed